PNC Financial Services Group, Inc. Files 10-Q for Q1 2024

TL;DR

<b>PNC Financial Services Group, Inc. reports Q1 2024 results and details significant regulatory changes impacting FDIC assessments and capital requirements.</b>

AI Summary

PNC FINANCIAL SERVICES GROUP, INC. (PNC) filed a Quarterly Report (10-Q) with the SEC on May 2, 2024. PNC Financial Services Group, Inc. filed its 10-Q report for the period ending March 31, 2024. The FDIC proposed a special assessment of 12.5 basis points on uninsured deposits to recover costs from bank closures. This special assessment is expected to significantly increase PNC's FDIC deposit insurance costs. Federal regulators proposed revised capital requirements for large banking organizations, including PNC, aligning with Basel III framework. The proposed capital rules would apply an expanded risk-based approach and require recognition of AOCI in regulatory capital.

Why It Matters

For investors and stakeholders tracking PNC FINANCIAL SERVICES GROUP, INC., this filing contains several important signals. The proposed FDIC special assessment could lead to substantially higher deposit insurance costs for PNC, impacting profitability. New interagency capital rules, based on Basel III, may require PNC to hold more capital and adjust its risk-weighted asset calculations, potentially affecting lending capacity and returns.

Risk Assessment

Risk Level: medium — PNC FINANCIAL SERVICES GROUP, INC. shows moderate risk based on this filing. The company faces medium risk due to significant proposed regulatory changes from the FDIC and Federal Reserve, which could materially impact costs and capital requirements.

Analyst Insight

PNC should closely monitor the finalization of the FDIC special assessment and the proposed capital rules, assessing their financial impact and developing strategies to mitigate potential increases in costs and capital requirements.

Key Numbers

• 12.5 — Basis Points (Annual rate of proposed FDIC special assessment)
• 5.0 — Billion (Amount of uninsured deposits excluded from FDIC assessment calculation)
• 8 — Quarterly (Assessment periods for FDIC special assessment)
• 2024 — Year (Beginning of FDIC quarterly assessment periods)
• July 27, 2023 — Date (Proposal date for expanded risk-based capital rules)
• July 1, 2025 — Date (Proposed effective date for expanded risk-based capital rules)

Key Players & Entities

• PNC FINANCIAL SERVICES GROUP, INC. (company) — Filer name
• FDIC (regulator) — Proposed special assessment
• Silicon Valley Bank (company) — Bank closure context
• Signature Bank (company) — Bank closure context
• Federal Reserve (regulator) — Proposed expanded risk-based capital rules
• OCC (regulator) — Proposed expanded risk-based capital rules
• Basel III (regulatory) — Framework for capital requirements
• PNC Bank (company) — Affected banking subsidiary

FAQ

Risk Factors

• FDIC Special Assessment [medium — regulatory]: The FDIC proposed a special assessment of 12.5 basis points on uninsured deposits to recover costs from recent bank failures, which is expected to significantly increase PNC's deposit insurance costs.
• Expanded Risk-Based Capital Rules [medium — regulatory]: Federal regulators proposed new rules to revise capital requirements for large banking organizations, including PNC, by implementing an expanded risk-based approach aligned with Basel III.

Key Dates

• 2024-03-31: End of Reporting Period — First quarter 2024 financial data
• 2024-05-02: Filing Date — Submission of the 10-Q report
• 2023-07-27: Proposal of Expanded Capital Rules — Initiation of public comment period for Basel III implementation
• 2025-07-01: Proposed Effective Date — Anticipated implementation of new capital rules

Key Financial Figures

• $5.00 — ch Registered Common Stock, par value $5.00 PNC New York Stock Exchange Indicate
• $5 — hares of the registrant's common stock ($5 par value) outstanding. T HE PNC F IN
• $16.0 billion — red portfolio represented approximately $16.0 billion in total commitments, including approxi
• $9.0 billion — al commitments, including approximately $9.0 billion of funded loans, at the time of acquisi
• $325 m — 2024 personnel expense by approximately $325 million, on a pre-tax basis. PNC incurred
• $150 million — pre-tax basis. PNC incurred expenses of $150 million in the fourth quarter of 2023 in connec
• $130 million — curred an additional pre-tax expense of $130 million related to the increase in the FDIC's e
• $515 million — sses. PNC incurred a pre-tax expense of $515 million during the fourth quarter of 2023. Se
• $1.3 b — me Statement Highlights Net income of $1.3 billion, or $3.10 per diluted common shar
• $3.10 — lights Net income of $1.3 billion, or $3.10 per diluted common share, for the first
• $461 m — for the first quarter of 2024 increased $461 million, or 52%, compared to $0.9 billion
• $0.9 b — eased $461 million, or 52%, compared to $0.9 billion, or $1.85 per diluted common shar
• $1.85 — n, or 52%, compared to $0.9 billion, or $1.85 per diluted common share, for the fourt
• $216 m — mber 31, 2023: Total revenue decreased $216 million, or 4%, to $5.1 billion. Net int
• $5.1 billion — venue decreased $216 million, or 4%, to $5.1 billion. Net interest income of $3.3 billion d

Filing Documents

• pnc-20240331.htm (10-Q) — 6167KB
• pnc-3312024xex22.htm (EX-22) — 3KB
• pnc-3312024xex311.htm (EX-31.1) — 10KB
• pnc-3312024xex312.htm (EX-31.2) — 10KB
• pnc-3312024xex321.htm (EX-32.1) — 5KB
• pnc-3312024xex322.htm (EX-32.2) — 5KB
• pnc-20240331_g1.jpg (GRAPHIC) — 85KB
• 0000713676-24-000046.txt (&nbsp;) — 28169KB
• pnc-20240331.xsd (EX-101.SCH) — 107KB
• pnc-20240331_cal.xml (EX-101.CAL) — 171KB
• pnc-20240331_def.xml (EX-101.DEF) — 749KB
• pnc-20240331_lab.xml (EX-101.LAB) — 1199KB
• pnc-20240331_pre.xml (EX-101.PRE) — 984KB
• pnc-20240331_htm.xml (XML) — 7425KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited). Consolidated Income Statement 40 Consolidated Statement of Comprehensive Income 41 Consolidated Balance Sheet 42 Consolidated Statement of Cash Flows 43

Notes To Consolidated Financial Statements (Unaudited)

Notes To Consolidated Financial Statements (Unaudited) Note 1 Accounting Policies 45 Note 2 Investment Securities 46 Note 3 Loans and Related Allowance for Credit Losses 49 Note 4 Loan Sale and Servicing Activities and Variable Interest Entities 60 Note 5 Goodwill and Mortgage Servicing Rights 62 Note 6 Leases 64 Note 7 Borrowed Funds 64 Note 8 Commitments 65 Note 9 Total Equity and Other Comprehensive Income 66 Note 10 Earnings Per Share 68 Note 11 Fair Value 69 Note 12 Financial Derivatives 76 Note 13 Legal Proceedings 82 Note 14 Segment Reporting 83 Note 15 Fee-based Revenue from Contracts with Customers 85 Note 16 Subsequent Events 87 Statistical Information (Unaudited) Average Consolidated Balance Sheet And Net Interest Analysis 88 Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) 90 Reconciliation of Core Noninterest Expense Guidance (non-GAAP) 90 Glossary 90 Defined Terms 90 Acronyms 91

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Financial Review 1 Executive Summary 1 Consolidated Income Statement Review 6 Consolidated Balance Sheet Review 9 Business Segments Review 12 Risk Management 19 Recent Regulatory Developments 34 Critical Accounting Estimates and Judgments 35 Internal Controls and Disclosure Controls and Procedures 37 Cautionary Statement Regarding Forward-Looking Information 38

Quantitative and Qualitative Disclosures about Market Risk. 21-38, 49-50,

Item 3. Quantitative and Qualitative Disclosures about Market Risk. 21-38, 49-50, 83-89

Controls and Procedures. 37

Item 4. Controls and Procedures. 37

– OTHER INFORMATION

PART II – OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings. 91

Risk Factors

Item 1A. Risk Factors. 91

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 92

Other Information

Item 5. Other Information 92

Exhibits

Item 6. Exhibits. 93 Exhibit Index 93 Corporate Information 93 Signature 95 MD&A TABLE REFERENCE Table Description Page 1 Summary of Operations, Per Common Share Data and Performance Ratios 2 2 Balance Sheet Highlights and Other Selected Ratios 3 3 Summarized Average Balances and Net Interest Income 6 4 Noninterest Income 7 5 Noninterest Expense 8 6 Provision for Credit Losses 8 7 Summarized Balance Sheet Data 9 8 Loans 10 9 Investment Securities 10 10 Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities 11 11 Details of Funding Sources 11 12 Retail Banking Table 13 13 Corporate & Institutional Banking Table 15 14 Asset Management Group Table 18 15 Details of Loans 19 16 Commercial and Industrial Loans by Industry 20 17 Commercial Real Estate Loans by Geography and Property Type 21 18 Residential Real Estate Loan Statistics 22 19 Home Equity Loan Statistics 23 20 Auto Loan Statistics 23 21 Nonperforming Assets by Type 24 22 Change in Nonperforming Assets 24 23 Accruing Loans Past Due 25 24 Allowance for Credit Losses by Loan Class 26 25 Loan Charge-Offs and Recoveries 27 26 Senior and Subordinated Debt 28 27 Primary Contingent Liquidity Sources 28 28 Parent Company Notes Issued 29 29 Credit Ratings and Outlook 30 30 Basel III Capital 31 31 Net Interest Income Sensitivity Analysis 32 32 Economic Value of Equity Sensitivity Analysis 33 33 Equity Investments Summary 33 34 Key Macroeconomic Variables in CECL Weighted-Average Scenarios 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE Table Description Page 35 Investment Securities Summary 46 36 Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses 47 37 Contractual Maturity of Debt Securities 48 38 Fair Value of Securities Pledged and Accepted as Collateral 48 39 Analysis of Loan Portfolio 50 40 Nonperforming Assets 51 41 Commercial Credit Quality Indicators 52 42 Credit Quality Indicators for Residential Real Estate and Home Equity Loan Classes 53 43 Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes 55 44 Loan Modifications Granted to Borrowers Experiencing Financial Difficulty 57 45 Financial Effect of FDMs 58 46 Payment Performance of FDMs Modified in the Last 12 Months 59 47 Payment Performance of FDMs Table 59 48 Rollforward of Allowance for Credit Losses 60 49 Loan Sale and Servicing Activities 61 50 Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others 61 51 Non-Consolidated VIEs 62 52 Mortgage Servicing Rights 63 53 Commercial Mortgage Servicing Rights – Key Valuation Assumptions 63 54 Residential Mortgage Servicing Rights – Key Valuation Assumptions 64 55 Lessor Income 64 56 Borrowed Funds 64 57 FHLB Borrowings, Senior Debt and Subordinated Debt 65 58 Commitments to Extend Credit and Other Commitments 65 59 Rollforward of Total Equity 66 60 Other Comprehensive Income (Loss) 67 61 Accumulated Other Comprehensive Income (Loss) Components 67 62 Dividends Per Share 67 63 Basic and Diluted Earnings Per Common Share 68 64 Fair Value Measurements – Recurring Basis Summary 69 65 Reconciliation of Level 3 Assets and Liabilities 70 66 Fair Value Measurements – Recurring Quantitative Information 72 67 Fair Value Measurements – Nonrecurring 74 68 Fair Value Option – Fair Value and Principal Balances 74

Selected Financial Data

Selected Financial Data The following tables include selected financial data, which should be reviewed in conjunction with the Consolidated Financial Statements and Notes included in Item 1 of this Report as well as the other disclosures in this Report concerning our historical financial performance, our future prospects and the risks associated with our business and financial performance. Table 1: Summary of Operations, Per Common Share Data and Performance Ratios Dollars in millions, except per share data Unaudited Three months ended March 31 December 31 March 31 2024 2023 2023 Summary of Operations (a) Net interest income $ 3,264 $ 3,403 $ 3,585 Noninterest income 1,881 1,958 2,018 Total revenue 5,145 5,361 5,603 Provision for credit losses 155 232 235 Noninterest expense 3,334 4,074 3,321 Income before income taxes and noncontrolling interests $ 1,656 $ 1,055 $ 2,047 Income taxes 312 172 353 Net income $ 1,344 $ 883 $ 1,694 Net income attributable to common shareholders $ 1,247 $ 744 $ 1,607 Per Common Share Basic $ 3.10 $ 1.85 $ 3.98 Diluted $ 3.10 $ 1.85 $ 3.98 Book value per common share $ 113.30 $ 112.72 $ 104.76 Performance Ratios Net interest margin (b) 2.57 % 2.66 % 2.84 % Noninterest income to total revenue 37 % 37 % 36 % Efficiency 65 % 76 % 59 % Return on: Average common shareholders' equity 11.39 % 6.93 % 16.11 % Average assets 0.97 % 0.62 % 1.22 % (a) The Executive Summary and Consolidated Income Statement Review portions of this Financial Review section provide information regarding items impacting the comparability of the periods presented. (b) See explanation and reconciliation of this non-GAAP measure in the Average Consolidated Balance Sheet and Net Interest Analysis and Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) Statistical Information (Unaudited) section in Item 1 of this Report. 2 The PNC Financial Services Group, Inc. – Form 10-Q Table 2: Balance Sheet Highlights and Other Sel